Why Regular Financial Reviews are Essential

Making time to for a Financial Review to look over your financial reports each month is a crucial task for any business owner. If you’re not taking the time to do this, whether due to a busy schedule or uncertainty about what the reports mean, here are six reasons why you should start.

Key Financial Reports to Review

Before diving into the reasons, let’s briefly discuss which reports you should be doing a financial review on. At a minimum, depending on your business's complexity, you should review the following:

1. Statement of Financial Performance (Profit and Loss Report / Income Statement): This report shows your business's performance over a period, detailing revenue generated minus expenses incurred. Essentially, it tells you how profitable your business is.
   
2. Statement of Financial Position (Balance Sheet): This report lists your business’s Assets, Liabilities, and Equity.
   
   Assets: Money in bank accounts, Plant and Equipment, Accounts Receivable.
   Liabilities: Bank loans, credit cards, Accounts Payable, Hire Purchase balances.
   Equity: The difference between your Assets and Liabilities, including Retained Earnings and Owner Funds Introduced.
   
3. Accounts Receivable Ageing Report (Aged Receivables): This report shows how much money is still owed to the business at a specific date, segmented by how overdue the amounts are (e.g., Current, 30, 60, 90 days).
   
4. Accounts Payable Ageing Report (Aged Payables): Similar to the Aged Receivables, this report shows who the business owes money to, segmented by overdue period.

Why Bother? Six Reasons to Review Your Financial Reports Monthly

1. Understand Your Business Better: By reviewing your Profit and Loss report monthly, you get a clear picture of your business's performance, understand what makes up your profit, identify trends, and highlight anomalies in coding/categorizing or unusual expenses or earnings.
   
2. Accurate Information for Lending Purposes: If applying for a loan or an overdraft, financial institutions will scrutinize your Profit and Loss report and Balance Sheet. We can help explain any balances you’re unsure about.
   
3. Get Paid Quicker and Reduce Bad Debts: Regularly reviewing your Accounts Receivable Aged Summary allows you to promptly follow up on overdue accounts, increasing the likelihood of timely payments and reducing the risk of bad debts.
   
4. Better Relationships with Your Suppliers: Your Aged Payables report will alert you to unpaid or overdue amounts, helping you maintain strong supplier relationships by paying on time.
   
5. Better Cash Flow: Understanding how much money your business is owed and owes helps with cash flow planning, ensuring funds are available when needed. Additionally, recognizing trends in profitability and expenses aids in planning effective sales and marketing campaigns.
   
6. Better Business Decision Making: Financial reports tell the story of your business. The better you understand this story, the better positioned you are to make informed decisions that enhance your business's profitability and financial viability.

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